Fed Balance Sheet Composition Update

Tyler Durden's picture

For those curious how the Fed's ongoing takeover of the US bond market looks like, below is a visual update.

A simple maturity distribution:

Over the week ending October 3rd, the average maturity of the Fed's System Open Market Account (SOMA) treasury holdings increased from 118.03 to 118.62 months. Before the onset of the Maturity Extension Program (MEP), the average maturity of the Fed's treasury holdings was around 75 months. The Fed has surpassed the original average maturity target of 100 months for the first MEP.

The average duration of the Fed's (SOMA) holdings increased to 7.31 years (87.67 months) for US Treasuries in the October 3rd week from 87.33 months in the prior week. The measurement of duration risk translates to an average price decrease of approximately 7.31% for each percentage point increase in all yields.

The net effect of maturing assets and treasury issuance over the week caused the average maturity of all marketable treasury securities to rise to 65.36 months from 65.28 months. The stock of the Fed's holdings reduced the average maturity of marketable treasury debt held by the private sector by 9.64 months from 9.58 months in the prior week, and the privately held public debt average maturity rose to 55.73 months from 55.70 months.

Since the recession, the Fed has lengthened the average maturity and duration attributes of the SOMA. It appears that they have reduced the supply of issues mostly in the seven to ten year range, owning 70% of some issues in that range.

And the punchline: The amount of ten-year equivalents held by the Fed increased to $1.333 trillion from $1.325 trillion in the prior week, which reduces the amount available to the private sector to $3.550 trillion. There were $4.884 trillion ten-year equivalents outstanding. The Fed owns 27.2% of the bond market expressed in 10 year equivalents. Assuming the Fed's balance sheet rises to $5 trillion by the end of 2014, this number will rise to nearly 60%.

Source: SMRA and St Louis Fed